Roth IRA could be key for teenage workers in the hot summer employment market

For years, few teens were looking for a summer job and instead chose to enhance their college applications with academic programs and unpaid internships. But when the economy recovered from the pandemic, employers were mostly begging for workers, and some opportunities were too good to miss.

With more flexible work arrangements and better salaries, the proportion of teens working during the summer has skyrocketed.

According to Ed Slot, a certified accountant and founder of Ed Slot and Company, it has given young workers a valuable opportunity to make a valuable and lucrative start to long-term savings.

“The biggest money-making asset is time,” he said.

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Strong summer for teen employment

whole, Over 6 million teensAccording to an analysis by the Pew Institute of Data from the US Bureau of Labor Statistics, there were paid jobs at least part of last summer, with teens having the highest summer employment rates since 2008.

Economists are predicting something else Strong summer For teen employment in 2022.Already about 5.5 million As of May, Pew reported that 16-19 years old were employed. (July is usually the time when youth employment peaks.)

And wages are still rising. The average hourly wage of teenage workers rose five times faster than the average wage of all workers in the first few months of the year, and wages of 15-19 year olds rose 4.1%, but all. It increased by 0.8% in the age group of. , According to data from the payroll platform Gusto.

How to get the most out of your summer income

Slott is recommended to open Loss individual annuity account To get a good start. There is no age limit, so anyone who earns money from summer work can contribute.

Even if a teenager only cleans up some money, parents can add money on behalf of their child as long as the total amount does not exceed the teenager’s income for the year.

Also note that there is an IRA contribution limit of up to $ 6,000 in 2022.

In the example Provided by Stacy Francis, Certified Financial Planner, President and CEO of Francis Financial in New York: If a teenager earns $ 2,000 in a local ice cream shop in the summer and saves half of it in a Roth IRA, parents will get an additional $ 1,000. You can donate. The investment account totals $ 2,000.

Even if no one contributes again Left in the compound That first $ 2,000 donation can increase significantly during the child’s working period. Assuming an average annual revenue of 7% for 50 years, $ 2,000 invested at age 17 could grow to over $ 65,000 by the time he retires at age 67.

“I don’t want to leave anything on the table,” said Slot, who opened a Ross IRA for his daughter, who got her first summer job at the age of 15. Savings after retirement. “

If you think your retirement is too far away, the account holder can withdraw donations at any time without taxes or fines, for example if you need money such as: College Or down payment House According to the slot, down the road. Think of it as an “urgent tax-free savings account,” he said.

“This removes that barrier in your mind that you have to wait until 59½.”

On the other hand, both the investment in these assets and all interest, dividends and growth accumulate over time. “Current or future taxes will never erode money,” Slot said.

It is also an excellent educational tool for emphasizing the “value of long-term savings”.

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Roth IRA could be key for teenage workers in the hot summer employment market

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